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High Fuel Costs Put Pressure on Transportation Budgets

fuel costs

Fuel costs are the second highest expense to a trucking company and are on the rise. High priced diesel fuel impacts the total cost of transportation through fuel surcharges. Shippers must look to other areas to help manage logistics costs. BlueGrace can help.

What’s in this article:

  • Current market volatility on rising fuel costs

  • How to help manage overall transportation costs

  • How high diesel prices may change future freight procurement strategies

Diesel fuel prices hit an all-time high the week of March 7th, 2022, rising 18.15% from last week and 57.85% from the same time last year, landing at a national average of $4.849 per gallon. Add that to an already volatile, over-burdened freight market and these steeply rising prices are greatly impacting fuel surcharges, total cost of transportation, and logistics budgets overall.

Shippers and carriers are bracing for the short-term impact from these rising prices, and potential long-term effects to their end customers who will eventually feel cost increases if fuel costs stay high.

High Fuel Costs Drive Up Transportation Costs Disproportionately

Paying fuel surcharges are a common industry practice. Therefore, paying higher surcharges for higher fuel costs makes perfect sense, right? Higher fuel prices affect carriers’ operational costs, and it makes sense that shippers would cover those higher costs through increased surcharge schedules. However, when the market has drastic spikes in fuel prices, that doesn’t mean rate per mile (RPM) should also spike dramatically, but often they do.

Uncertainty in the market can make linehaul rates spike as providers attempt to insulate themselves from potential fallout in their own costs, as well as capitalize on margin opportunities.

Rate per mile costs can rise even higher in an increasing fuel market, beyond that of just the increase fuel prices. Why is this? Uncertainty in the market can make linehaul rates spike as providers attempt to insulate themselves from potential fallout in their own costs, as well as capitalize on margin opportunities. Carriers can’t predict how high fuel costs will continue to rise, how long they’ll stay high, and if there will be enough fuel supply to satisfy their needs. This uncertainly often drives carriers to increase linehaul rates while also receiving higher fuel surcharges.

What Can You Do to Deal with High Fuel Costs?

Because fuel is a commodity with exposure to supply and demand economics and many market drivers it’s impossible to control the cost of fuel. It’ll never be a fixed operating expense for carriers and shippers will always be exposed to moving fuel surcharge schedules. However, shippers can be cognizant and critical of increasing linehaul rates given the many other factors affecting the marketplace. One turnkey approach to managing costs in volatile markets can be to focus on reducing costs where you do have control:

  • Sourcing strategies
  • Supplier relationships
  • Warehouse and storage utilization
  • Receiver relationships
  • Modal selection
  • And more…

Reduce Deadhead (DHD) Miles

This is the number one way to reduce transportation costs. Reducing empty miles allows carriers to charge for loaded miles while not having to try and get compensated for unloaded miles. Shortening any deadhead miles helps cut transportation costs without sacrificing service.

Utilizing a 3PL can often help offset deadhead miles because they have large networks and carrier relationships.

Reducing deadhead can be difficult if your freight network and carrier relationships are not large enough. Utilizing a 3PL can often help offset deadhead miles because they have large networks and carrier relationships. You can also achieve lower deadhead by planning loads much further in advance. Sometimes it requires being patient with your shipping window and waiting for the right carrier match.

Optimize Your Shipments

More dense shipments with less wasted space can help cut costs, especially if you can haul more freight with less trucks. If you have instances when you send trucks that aren’t completely full, that’s your area of opportunity. Dig deep into your orders and shipments to see where you can consolidate your pick-ups and always send as full truckload from your facility. If you’re still lacking full capacity, contact other customers to see if they have other product needs, or if their shipping schedule can be flexible to accommodate shipping a full truck load.

If you can optimize your shipments, it will not only help save money, but it helps reduce your carbon footprint as well.

Modal Optimization

Choosing the right mode or service to move your freight is paramount in managing your costs. Building a modal utilization strategy, as well as using order level data and optimization technology to select most optimal mode can drive out cost. More in-depth, but equally as effective, are establishing programs to move traditional truckload freight via Intermodal, building consolidation programs, and order fulfillment optimizations are critical steps in planning and execution.

Leverage Your Network

Having strategy built for route guide erosion can help you better budget for rejected shipments during times where costs are rising and can’t always be controlled.

In times of rising costs, right sizing freight networks and providers are critical. For example, by using to many 3PL’s in your supplier network you can inadvertently drive-up costs due to all these suppliers trying to secure the same capacity in a city, region, or location where shippers have capacity needs. Having too many providers can hurt versus help, so it’s critical to leverage your partners and networks by building capacity strategies. You should consider eliminating tender rejects and keeping freight from hitting spot boards through back-up capacity and routing guide strategies.

Having strategy built for route guide erosion can help you better budget for rejected shipments during times where costs are rising and can’t always be controlled.

Keep Your Transportation Budget Intact

With every changing market cycle, we can learn a lot. Being forced to control costs in the face of a rising oil market can help us immeasurably even after diesel prices return to lower levels.